07.21.09
By John Ulzheimer
One of the best ways to immunize yourself from the credit crunch, and the actions of most large credit card issuers, is to do your best to pay off your
credit card debt as quickly as possible. From this strategy emerges an often-debated question: Which of my
credit cards should I pay off first? There are several schools of thought on the topic and, unlike most of the credit advice you’ll hear from the expert sect, there are actually
several correct answers.
1. Pay off the card with the highest interest rate. Clearly this is a solid decision because this way you pay off your most expensive debt the fastest. This is a good choice for consumers who are the most cost-sensitive. The faster you can get expensive debt paid off, the faster you can refocus the payments toward the rest of your debt.
2. Pay off the card with the lowest balance. There is value to your credit scores here. Credit scores, and your FICO® score in particular, favors fewer accounts with a balance. If you can knock out some low-hanging fruit, you’ll go a long way in improving your FICO scores. Plus there’s something very empowering about seeing that $0 balance. Not getting a statement the following month is also very rewarding.
3. Pay off the card that has the highest balance. Again, there’s a credit score play here. FICO scores will penalize you for having large balances on credit cards. And while your #1 concern as you’re paying off your debt might not be your FICO score, you should at least recognize that cards with balances that are too close to the limits are especially damaging and, for now, can lead other issuers to take adverse actions against you.
4. Pay off the card that is the most highly utilized. Don’t confuse this strategy with the previous strategy. They’re different. This is simply a decision to pay down the card that has the highest utilization. Utilization is the relationship between your credit balance and your credit limit expressed as a percentage. This can be a card with a $500 balance or a card with a $50,000 balance. The value is, again, a stronger credit score.
So as you can see, there are several options to choose from and all of them have their pros and cons. The bottom line is, regardless of which option you choose, getting out of credit card debt is a smart move. Now you just need to choose the best method for your personal situation.
More Experts Articles
| News Home | Discuss in our Forum
Print 
